In March 2018, the U.S. President announced that America will now apply a 25% tariff on steel imports and a 10% tax on aluminum coming from abroad. This was quite the decision, especially considering the fact that America is the world’s largest steel importer.
The overall reaction was fierce and the global stock markets tumbled as investors became concerned over escalating tensions and their effects on global growth. Stock markets have however, recovered as they recently recorded their highest level of 2019 among investor optimism as trade negotiations resume in Washington.
Although talks between the U.S. and China will continue this week, investors won’t really know if any key issues are resolved such as market access, intellectual property enforcement, currency manipulation, more American goods being bought by China, and so on.
This uncertainty creates higher market volatility that can affect your trading performance. It’s recommended that you are prepared for this instability and volatility that can impact different asset classes according to the evolution of the trade war situation.
It’s pretty straight forward.
Every time discussions escalate between the U.S. and China, investor sentiment becomes quite pessimistic which weighs on the price of many financial assets. If commercial war escalates, international trade will reduce and in turn, hurt global growth. Investors then seek less risky assets such as safe haven instruments like Gold.
Indeed, Gold is an asset that tends to outperform in times of political and economic uncertainty and high stock market volatility. This market phenomenon, when investors sell higher-risk investments to buy safer ones, is called flight-to-quality or flight-to-safety.
When talks ease and show signs of improvement with new agreements, investors then become more optimistic and ready to buy back more risky assets like stocks and indices.
As you can see, there are great opportunities to profit from, regardless of the investors’ sentiment. You should then adapt your trading method to these situations of pessimism and optimism to make the most it.
It could be a good idea to be trading financial instruments like derivatives that can allow you to profit from both rising and falling markets, as it could greatly improve your results. Remember that a strategy often deteriorates with time and needs adjustments. This especially true, as no ttrading methodis profitable forever, because it doesn’t work in every type of markets (rangy, bullish, bearish).